Financings of the Fortnight Checks The Corporate Venture Numbers

How important is corporate venture capital right now to the life sciences? That’s one of the key questions in this year’s START-UP Life Science VC survey, the results of which will be published in a few weeks.

When asked about themselves, corporate VCs mainly said they were important (77%), and the rest (23%) minority said they were crucial. Not exactly unexpected.

But traditional life science VCs were right there behind their corporate counterparts. 22% said CVC was crucial and 69% said important. Of the rest, 7% agreed with the statement “It’s of growing importance but will be relegated to the sidelines once traditional VC returns,” and 2% said CVC was insignificant.

That’s even more glowing than what institutional VCs said in the 2012 survey. Here are the institutional VCs' answers in 2012 and 2013:

Click to embiggen.

 Corporate investors’ Q ratings are going up at the same time their wallets are opening. According to the National Venture Capital Association and PricewaterhouseCoopers, 18.3% of biotech deals in 2010 and 2011 combined had CVC participation, accounting for 8.0% of biotech venture dollars. The average investment per round was $4.0 million.

In 2012, the average investment per round jumped 20%, to $5.0 million, and 19.5% of all biotech deals had CVC participation. The share of CVC dollars was 10.9%. Tack on the first half of 2013, and the last 18 months continue along those lines: corporate venture was involved in 19.2% of all biotech venture deals from the start of 2012 through June 2013, and their dollars accounted for 10.1% of all biotech venture. The average amount of participation per round was $4.9 million.

We’re not just tracking the corporate venture story for biopharma. Here’s a story that looks at the growing influence of hospitals and insurers in health care venture; and here’s one that examines the flow of corporate venture to medical device start-ups. Those sectors have also seen an increase in corporate venture dollars, according to the NVCA. (You can download all their corporate venture reports here.)

With all the IPO activity this year, we’ll also be able to update another corporate venture story we track closely: the financial returns of start-ups with corporate investors on board. Look for an update of those numbers this fall or early winter. Last time we checked was October 2012, and we found that biotechs with corporate venture backing averaged a 1.6x step-up at IPO, slightly lower than the 1.8x for those without corporate investors. That’s the opposite of what we uncovered for acquisitions: corporate-backed biotechs fare better when selling, with an average 4.3x step-up, compared with those without (3.5x).

Is this the reality from now on? As one VC said in the survey comments, “It wasn't all that long ago that corporates were the last folks you'd call to raise money, and you'd only do so if you were desperate or if they were willing to pay up."

It's hard to imagine traditional VC roaring back to fill the early stage coffers of platform and early technology companies, a niche the corporates have begun to claim (more on that in the upcoming survey). But overall, let's not forget that even with this apex, CVC participates in one of five biotech venture rounds. There's a long way to go before corporate venture dominates the landscape the way, say, the freely available bi-weekly biotech financing roundup is dominated by...

Retrophin: Martin Shkreli’s fledgling biotech got another injection of capital on August 16 when the company tapped new and existing institutional investors for a $25 million PIPE (private investment in public equity) financing. Retrophin sold approximately 5.6 million shares of common stock and warrants. The company conducted a similar financing in February, issuing 3,333,332 shares of common stock and warrants to purchase an additional 1,530,559 shares of common stock, which resulted in $10 million in proceeds. The new PIPE proceeds will help advance the company’s early-stage pipeline. Proceeds will also help license an autism treatment from an undisclosed major pharmaceutical company. None of the programs in Retrophin’s pipeline have made the advancements the 30-year-old Shkreli has been promising since the company’s inception a few years ago.
A Phase II pivotal study of RE-021, its lead compound, was intended to begin in early 2013 for the treatment of focal segmental glomerulosclerosis but has yet to enroll patients, and timelines continue to be pushed back. The company has yet to conduct any clinical trials in humans for any of its compounds, but has released what it believes to be promising data from studies in mice. Shkreli started the company after leaving his hedge fund MSMB Capital, which he started in 2000. He wasn’t shy about making waves as a hedge-fund manager, such as when he led an activist shareholder battle against AMAG Pharmaceuticals in 2011. Shkreli and his fund pushed for the ousting of the company’s management should the merger with Allos Therapeutics take place; the issue was dropped when the merger failed. – Lisa LaMotta

Sophiris Bio: It wasn't pretty, but the Canadian-American biotech raised $65 million in an initial NASDAQ listing after nine years of being public on the Toronto Stock Exchange (TSE). The funding is expected to take it through 2015, including top-line data by the end of 2014 for a Phase III trial of lead candidate PRX302 (topsalysin) that's slated to start this half. PRX302 is a genetically modified protein to treat benign prostatic hyperplasia (BPH), also known as an enlarged prostate. Activated by prostate specific antigen (PSA), PRX302 binds to the GPI-anchored receptors on the cell surface of prostate cells. It induces cell death once activated. This, in turn, can relieve BPH-associated lower urinary tract symptoms such frequent and urgent urination, as well as a higher risk of urinary tract infections, urinary stones and bladder damage. Existing shareholders, including Tavistock with its 30.5% pre-IPO stake, committed to buy about $22.4 million worth in the offering. Other existing investors include Warburg Pincus (27.8%) and BC Advantage (6.6%). To lift its share price ahead of the offering, Sophiris executed a 52-1 reverse stock split on August 9. By August 14, that put its share price on the TSE at US $8.32. The offering priced at US $5 per share and sold 13 million shares on August 15; that's well below the last price on TSE. It had planned to sell only 5 million shares, when its TSE shares were each about US $13. In 2011, Sophiris moved its headquarters to San Diego from Vancouver, BC. – Stacy Lawrence

Regado Biosciences: The IPO window may be wide open for life sciences companies, but that doesn’t mean going public is always easy. Anticoagulant developer Regado scaled down expectations for its August 21 listing, finally pricing at just $4, far below its anticipated $14 to $16 range. The company sold 10.75 million shares in the offering, more than twice its original goal of 5 million, but still raised $43 million rather than the $75 million it hoped to take in. Regado will use the funds for a Phase III study of lead program REG1, a two-component anticoagulant used during heart surgeries. The therapy includes a therapeutic aptamer, pegnivacogin, and a control agent called anivamersin that reverses the aptamer’s effects. Physicians use the combination to balance the risks of ischemic events and excessive bleeding that can occur during percutaneous cardiac interventions. Shareholders in the Basking Ridge, N.J. company include Russian investment firm Rusnano, Fastenal Co. founder Robert Kierlin, Domain Associates, Edmond de Rothschild Investment Partners, Aurora Ventures, Quaker BioVentures and Baxter International Inc. Insiders purchased nearly $31.7 million worth of the shares sold in the offering, well more than 50%. – Paul Bonanos

Tigercat Pharma: The third project in the hands of Velocity Pharmaceutical Development Corp., the CMEA Capital-funded operator of virtual companies, now has a name. Tigercat Pharma was founded last year to study VPD-737, also known as serlopitant, as a treatment for chronic itching, or pruritis. Velocity and partner investor Remeditex Ventures of Dallas have since invested an undisclosed amount in it. A January regulatory filing suggests that Tigercat plans to raise up to $15 million, but at that time it had taken in $500,000 from a single investor. Tigercat licensed serlopitant from Merck & Co. Inc., which previously studied the neurokinin-1 receptor antagonist for overactive bladder. A clinical trial showed that it was no more effective than Pfizer Inc.’s Detrol (tolterodine) in treating the disorder, although it was well-tolerated by patients. Tigercat joins Spitfire Pharma Inc., Corsair Pharma Inc. and an as-yet-unnamed program among Velocity’s projects, funded by Velocity Pharmaceutical Holdings and operated by Velocity Pharmaceutical Development employees. Spitfire has VPD-107 for type 2 diabetes, and Corsair has VPD-380 for a pulmonary indication; neither has been tested in humans. (We’re guessing that the fourth project will also be named for a fighter aircraft, and we’re guessing it won’t be Fokker.) Velocity and Remeditex separately pledged to explore investment opportunities jointly. Regionally-focused Remeditex has confined its investments to Texas and Colorado previously, but expects to broaden its reach with the deal. – P.B.

Financings of The Fortnight Sneaks A Peek At The VC Survey

Pennant races are on. Kids are back to school. (Wait, whatever happened to summer lasting until Labor Day?) And 90% of the venture capital world is on vacation. Whew. Good thing we caught more than 100 of the top life science VCs earlier this summer to participate in START-UP Magazine’s second annual Life Science VC Survey.

We’re putting the finishing touches on our package of feature stories and survey results, including a series of questions for corporate VCs, an ever-more important subset of investors whose role in funding biotech innovation has changed dramatically in the past few years. We’ve asked our participants a battery of questions, and here's a sneak preview: The overall mood hasn’t improved from last year’s survey, and unlike last year, a handful of VCs planning to hit the pavement and raise new funds now tell us that they’re willing to take lower terms and fees (virtually zero said so in 2011). Some are also moving forward with plans for smaller funds and smaller staffs.

(You can find the 2011 survey here and here. Subscription required.)

One partial counterweight to the sour mood and fundraising difficulties is the Food and Drug Administration. In 2011, not a single optimist said the FDA was a reason to feel positive, while 80% of the pessimists said the FDA was one of the largest obstacles the life science industry faced. In 2012, it’s not all horseshoes and hosannas, but 23% of the people who call themselves optimists said the FDA was a reason to feel positive -- a big jump from zero -- while 73% of the pessimists named the FDA as an obstacle. Given the consistency in recent years of the nearly comical vitriol life science VCs have aimed at FDA, any improvement is notable.

Another focus of our survey is therapeutic area. VCs are eternally curious what their peers find the most interesting areas for investment, whether to avoid the herd mentality or to avoid being left behind. Topping the list of most compelling indications or technologies on the biopharma side for the second straight year are oncology and rare disease. The latter we find particularly interesting, seeing how some observers of the field think we could be in a rare-disease bubble at the moment, typified by the Enobia Pharma sale to Alexion at the end of 2011.

One disease area that received a surprising boost of investor confidence in our survey was metabolics/diabetes, which went from solidly unattractive in 2011 to just a bit more hot than not. On the flip side, one of this year’s biggest losers was next-generation biologics platforms, perhaps an acknowledgment that the gold rush of a few years ago has played itself out.

We also asked about politics and policy, geography and stage preference, and we’re slicing and dicing the results in various ways to find out how these subgroups of respondents intersect. We’ll feed you more tidbits in our next column and on Twitter (@invivoblogalex), but if we give away more this time around we’ll have to sing for our supper. Let’s get on with our round-up. Survey says it's…

Novira Therapeutics: Anti-viral drug developer Novira said Aug. 23 it had closed a $23 million Series A round led by first-time investors 5AM Ventures and Canaan Partners. Contract research organization WuXi PharmaTech, based in Shanghai and listed in the U.S., also participated in the round. Three-year-old Novira had been backed previously by seed-stage backer BioAdvance, as well as regional angel groups Mid-Atlantic Angel Group, Robin Hood Ventures and Delaware Crossing Investment Group, which had collectively supplied about $3.5 million to date; all contributed to the new round as well. The Philadelphia-area company plans to develop novel therapies that disrupt viral replication and proliferation by inhibiting the life cycle of the capsid, the protein shell that encloses genetic material inside of viruses. It currently plans to investigate drugs for hepatitis B and HIV, although candidates have not yet been identified for either indication. The company intends to retain rights to a lead program in HBV as it progresses into mid-stage trials, while it may partner an HIV program at an earlier stage, according to CEO Osvaldo Flores. Although HIV research has spurred excitement with renewed hope for a cure, deal-making in the space remains a rare occurrence. An SEC filing indicates that Novira has collected the first $11 million of a $26.5 million round, which Flores said includes the seed money as well. – Paul Bonanos

MediciNova: MediciNova, a specialty firm that licenses approved small-molecule compounds from Japanese companies for development and approval in the U.S., has signed a two-year, $20 million common stock purchase agreement with Aspire Capital Fund. The funds will lengthen MediciNova’s runway as it tries to move a pair of lead programs into pivotal clinical trials. Aspire has bought 606,000 MediciNova shares at $1.65 per share, the firm’s closing price on Aug. 2, for a total of $1 million. Headquartered in both San Diego and Tokyo, with shares traded on both countries’ stock exchanges, MediciNova was one of the more successful biotech IPOs in 2005, raising $113 million.  The income bought additional time for MediciNova’s business model in 2009, allowing it to outlast Biotechnology Value Fund in a battle to acquire Avigen, which brought MediciNova additional cash and the compound ibudilast (MN-166/AV411), in development for progressive multiple sclerosis, neuropathic pain and drug addiction. Ibudilast is currently in grant-funded mid-stage trials for drug addiction. MediciNova’s other lead program is bedoradrine sulfate (MN-221) for acute asthma and chronic obstructive pulmonary disorder. The Aspire deal will help MediciNova advance '221 into a Phase III trial in either acute asthma or COPD by early 2013, but it's unclear how much beyond that trial the cash will last. Based on Aspire’s previous dealings with biopharmaceutical companies, which include similar equity line arrangements with Bionovo and NuPathe, MediciNova expects Aspire to be a long-term investor, with an ownership interest that should reach and then remain in the 5% to 10% range. -- Joseph Haas

Elcelyx Therapeutics: San Diego-based Elcelyx announced a $7 million extension of its Series B financing on Aug. 13, as well as a pair of executive hires, including former Biogen Idec and Mpex Pharmaceuticals business development leader Mark Wiggins as its senior VP of business development. Built upon a platform that produces first-in-class Gut Sensory Modulators (GSMs), Elcelyx plans to develop two products: Lovidia, an over-the-counter weight-loss supplement, and NewMet, a delayed-release formulation of diabetes drug metformin, which the company says will offer a much better safety profile than existing formulations. It’s the latest example of a biotech, or a management team, using a single platform to pursue a dual prescription/over-the-counter strategy. Elcelyx’s two products could offer a life cycle management opportunity for a future pharma partner. Elcelyx launched in 2010 and has raised about $20 million in venture capital over its lifespan, including $17 million under the B round. The $7 million extension was funded by existing backers Morgenthaler Venture Partners, Kleiner Perkins Caufield & Byers and Technology Partners. At present, Elcelyx is taking down $4 million of the extension, which CEO Alain Baron said will take the firm “well into efficacy trials” for Lovidia and NewMet. – J.H.

Relypsa: Still trying to get its phosphate binding agent into Phase III, Relypsa has raised nearly $50 million as part of an $80 million Series C round, according to a regulatory filing. Its lead compound, RLY-5016, is designed to linger in the GI tract and absorb excess potassium, a toxic side effect of certain drugs such as blood pressure medicine. An acute buildup of potassium is called hyperkalemia and can lead to arrhythmia or cardiac arrest. RLY-5016 has been tested in five clinical trials since entering the clinic in 2008 and currently is in a 300-patient, year-long Phase IIb trial for the treatment of diabetic nephropathy. Data from the ongoing trial are expected to be presented later this year. Two Phase III trials are expected to start in early 2013. The company plans to file for an NDA by the end of 2013 and will commercialize the drug on its own, president Gerrit Klaerner told “The Pink Sheet” DAILY. Relypsa is the reincarnation of Ilypsa, a company bought by Amgen in 2007. After paying $420 million, Amgen spun out the remaining four preclinical compounds; Ilypsa’s previous management team has overseen the business. Amgen took an equity stake in the company, less than 20%, when it was spun out. RLY-5016 appears to be tracking behind original expectations. In 2007, at the time the company was formed, management was aiming to advance RLY-5016 into Phase III trials within 18 to 24 months. Later, upon the Series B raise in 2010, the company said those funds would be used to take the compound through Phase III. – Lisa LaMotta